Federal budget mess: Six ways to fix it

Surprise! It turns out America's problem with runaway budget deficits is solvable, after all. That, at least, is the opinion of some prominent think thanks that have been offering ready-made blueprints.

4. Heritage Foundation

David Goldman/AP/File
A tax deduction for college tuition would be one of the few tax deductions to survive in the Heritage plan.

Think of this group as most in line with Rep. Paul Ryan (R) of Wisconsin. Like the House budget plan Mr. Ryan crafted, Heritage envisions a sharp curtailment of the size of government. Big spending cuts allow the debt to fall, deficits to shift to surplus, and taxes to remain low.

Taxes. Overall federal tax revenue would remain low at about 18.5 percent of GDP in 2035, well below the CBO baseline forecast of 23.3 percent.

• Replaces current income tax and payroll tax with a flat (single rate) tax.
• Leaves fewer deductions and credits, but retains deduction for charity.
• Creates new tax deductions for college tuition and savings.

Spending. Federal spending would plunge to 17.7 percent of GDP in 2035, again dramatically below the CBO forecast of 28.3 percent.

• Maintains defense spending at 4 percent of GDP.
• Eliminates many programs, privatizes others, and shifts some (transportation) to states.
• Sets a budget process with enforceable caps to bring spending down.

Entitlements. Spending on health and Social Security programs would be held to just 9.2 percent of GDP in 2035, with the CBO forecast set at 16 percent.

Converts Medicare to premium-support program, with benefits adjusted by income.
• Raises eligibility age and links that age to changes in longevity.
• Shifts Social Security to a flat $1,200 monthly benefit (with income-based phaseout), indexed to wage growth.
• Eliminates payroll tax (finances Social Security from flat tax on income).

Deficit or surplus. Surplus of 0.8 percent of GDP in 2035, versus a 5 percent deficit in CBO baseline.

Debt. The plan brings public debt down to 30 percent of GDP by 2035 (and falling at a rapid clip).

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